Businesses in the finance industry in Canada are well-regulated, and MSBs are no exception. They are responsible for remaining compliant with a series of laws to maintain financial institutions' trust and protect end users.
This includes compliance with Proceeds of Crime (Money Laundering) and Terrorist Financing Act (S.C. 2000, c. 17).
But keeping up with an ever evolving ecosystem results in unprecedented roadblocks and hassle which are easily avoidable with the help of a dedicated compliance officer.
But first, what is an MSB?
MSBs and fMSBs encompass a broad range of financial entities, including money transmitters, payment processors, cross-border remittance companies, currency exchanges, crypto exchanges, and more.
While MSBs are meant to have a physical presence in Canada and fMSBs (with Canadian clients) are not, both are subject to the regulatory oversight of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated regulations.
MSBs are essential to the financial ecosystem, since they make payment services available to people who may not utilise traditional banking systems. The critical nature of this business necessitates strict rules and regulations.
Thus, the government keeps on coming with a new set of updates and frameworks in order to fight off financial crimes that would breach the integrity of the economic system.
What are the legal requirements for MSBs?
Compliance Officer
The law mandates that every MSB should have a compliance officer who coordinates and implements the compliance program.
The officer needs to have thorough information about Canadian laws, regulations, and updates, especially those concerning the business under the Terrorist Financing Act and Proceeds of Crime Money Laundering) Act.
These compliance officers act as the primary contact between the MSB and the regulatory bodies. They ensure that, by all means, the MSB has adhered to all reporting and record-keeping requirements.
The compliance officer is critical in demonstrating MSB's commitment to compliance with the laws and regulations as well.
Physical Presence
An MSB must have a physical location in Canada according to FINTRAC agents we’ve spoken to. This means a private physical address is required—not a PO box or virtual office.
A representative must also be present in the office during business hours, as there is always a possibility of an inspection and audits from FINTRAC.
The representative that will be hired needs to be prepared for on-site examinations at any moment by FINTRAC.
This helps the government ensure that such processes within MSB are transparent and accountable.
Practical Considerations - Bank Onboarding
There is a growing need for solid support for compliance in Canada, especially among electronic money institutions (EMIs), BAAS providers, and banks servicing MSBs.
Without an actual office that contains a seasoned compliance officer, building and maintaining effective banking relations can be pretty tricky.
From our experience, a large portion of the clients who have used our fractional AML service approached us because they needed an experienced Canadian compliance officer and physical presence in order to obtain a bank account.
Responsibilities of a Compliance Officer in a Canadian MSB
An MSB has to have a compliance officer who will be responsible for ensuring adherence to the anti-money laundering (AML) and counter-terrorist financing (CTF) laws. Their responsibilities include:
- Maintaining a tab on compliance of AML obligations: ensuring the strict implementation of all AML regulations.
- Supervising Training and Communication: Training staff members about AML policies and amendments.
- Maintaining AML documentation: preserving precise and in depth records as mandated by law.
- Understanding the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, SC 2000, c 17 (PCMLTFA) and Associated Regulations: Awareness of Canadian rules pertaining to the PCMLTFA.
- Knowledge of the Services and Products the Company Offers: Being informed about how the company's offerings can be exploited to finance terrorism or launder money.
- Mitigating Possible Risks: Identifying and reducing risks associated with terrorist financing and money laundering.
Compliance officers are in charge of keeping up with changing regulations and updates, ensuring that MSB procedures and guidelines address these changes. This position demands regular education and training to meet the ever evolving compliance requirements.
Benefits of Hiring a Compliance Officer
Banking
Most banks and BAAS providers expect that you have strong Canadian compliance support and have physical presence in Canada.
Without these pieces in place, you’ll have a hard time getting banked and getting your business off the ground.
Expertise and Knowledge
A Canadian compliance officer ensures that your MSB is always in full compliance of your AML and CTF regulations.
This awareness and expertise helps reduce the associated dangers of non-compliance, including significant penalties, and business closures.
Managing Risks Effectively
Compliance officers are trained to identify and mitigate potential risks, thus protecting the organisation from litigation and associated financial losses.
Their proactive approach toward risk evaluation and mitigation comes in handy.
The compliance officer, in such a way, can help an MSB avoid such traps, leading to substantial financial loss or reputational damage by implementing robust risk management processes.
Training for Employees
It requires continuous training and open discussion of compliance procedures to maintain a compliant work environment. The compliance officer would continuously update every staff regarding compliance procedures with the changing regulations.
Good training initiatives allow staff to identify suspicious activity and report it, improving the overall safety and reliability of the MSB's operations.
Maintaining Records
This is best practice to support audits and investigations for proper and accurate AML records. It falls under the duty of a Compliance Officer, ensuring that those records are kept appropriately and easily accessible.
Maintaining accurate records is essential for proving compliance during inspections and can offer significant data about how effectively the MSB's AML program is operating.
Why You Should Hire a Fractional Compliance Officer
For many MSBs—especially startups or small enterprises—it can be difficult to afford a full-time Compliance Officer.
To help in such times, a fractional compliance officer can help you by offering all the advantages of a full-time one, but at far less cost.
Affordable
With fractional compliance, businesses can tap professional compliance expertise without carrying an additional, full-time hire.
This will, therefore, enable the MSBs to invest their resources better and ensure that they can maintain compliance without putting at risk other parts of their operations.
Banking
Renno is well-connected with a network of banks and BAAS-providers that provide accounts to MSBs. We view it as our mission to help our clients get banked.
Flexibility
Depending on the demands of the company, a fractional compliance officer can be hired, hence making it flexible to deal with compliance requirements without necessarily having them as permanent employees within an organization.
This adaptability can make MSBs adjust their compliance operations in accordance with their growth and changing regulatory framework.
On-Demand Expertise
MSBs are granted instant access to the skills of experienced compliance specialists with knowledge of up-to-date regulations and industry best practices that can help keep the business compliant at any time.
You get access to a team of specialists that is much more resourceful because you get a broad range of insights and solutions than a lone full-time compliance officer.
Fulfilling Regulatory Requirements
A fractional compliance officer means that regulatory requirements are being met, and a robust compliance framework is being implemented—both necessary precursors to establishing and holding on to banking relationships.
Way Forward
For MSBs to operate successfully in Canada, compliance becomes the key. The laws are not open to negotiation. There is no negotiating the legal requirements or dodging hefty fees associated with noncompliance. It is wise to invest in strong compliance assistance to ensure long-term business success in the face of a more demanding regulatory environment.
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The content on this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.
